Freddie Mac Earnings Put Government in the Black

NEW YORK (TheStreet) -- Freddie Mac (FMCC) on Thursday announced a fourth-quarter profit of $8.6 billion and said it would pay a dividend to the U.S. Treasury of $10.4 billion.

Freddie Mac and its sister company Fannie Mae (FNMA) -- together known as the government sponsored enterprises, or GSEs -- were taken under government conservatorship at the height of the U.S. credit crisis in September 2008.  The government received senior preferred shares in lieu of total bailout investments of $72.3 billion in Freddie Mac and $117.1 billion in Fannie Mae.  The GSE bailout agreements originally called for Fannie and Freddie to pay annual dividends of 10% on the government-held preferred shares, but the agreements were amended in August 2012, to require the GSEs to pay all of their earnings as dividends to the government in excess of minimal capital cushions. 

Following its March dividend payment, Freddie Mac will have paid the Treasury a total of $81.8 billion, exceeding the Treasury's total investment in the mortgage giant.  Fannie Mae on Monday made a similar announcement, saying that after its March dividend payment of $7.2 billion, it will have paid the government a total of $117.2 billion in dividends.

When the Federal Housing Finance Agency took direct control of Fannie and Freddie in 2008, it was difficult to imagine just how profitable the GSEs would turn out to be.  Both entities saw tremendous boosts to earnings last year through one-time recoveries of deferred tax asset valuation allowances.  Freddie Mac earned $48.7 billion during 2013, with a DTA recapture of $23.3 billion, while Fannie earned $84 billion, with a DTA recapture of $47.6 billion.

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